Expected Net Present Value Analysis






Case Studies




Decision Tree analysis, real options modeling, quantitative analysis, quantitative modeling, modeling and expected value modeling.


  • Expected Value Analysis / Real Options

SG Systems can perform expected value analysis with real options modeling during all aspects of early-stage, mid-stage, and late-stage product development.  Decision tree modeling is a standard method for determining expected value from a single product or an array of products and can take into account the abandonment option, option to switch inputs or outputs, option to delay, or option to grow [real options].  Also, simple NPV weighting based on expected probability of positive outcome is used.  More often than not, both techniques are used as a sanity check against each other. 


Calculate the range of expected valuesThe decision tree model is typically a simple yes / no Boolean equation which either moves the product along their path to becoming a marketed product ["yes" branch] or shunts the product off the valuation model ["no" branch] onto a negative branch.  The negative branch is also referred to as the abandonment option where 'staying the course' is obviously the wrong choice.  The decision tree model will return an expected NPV, positive or negative, for the project in either case because you will have spent money to get the product to whatever its end point is, a market product or not.  Also, the transparent decision tree model allows examination of all nodal points and can highlight some important, perhaps overlooked information. 


Expected value analysis / real options modeling is an excellent tool for determining and evaluating overall company risk and can even impact the firm's cost of capital.


For more details see Case Study: Expected Value Analysis / Real Options.




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